Investors review the cap table as part of their diligence process. 

They look for the following in the cap table:

The founders have a large enough stake that keeps them motivated.

Those who have very little ownership will most likely not stay with it for the long haul.

The right people need to have enough equity to make the business successful.

The founders should have 40-50% – or greater – after the Series A.

There shouldn’t be too many people on the cap table in early-stage companies.  

There should be no shell companies.

For those who want to use crowdfunding, make sure you create a special purpose vehicle for gathering them into one place on the cap table.

Show the cap table in its fully-diluted form so as to include options, warrants, and restricted stock.

There should not be too much dilution from the investors coming in especially in the early stages.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

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Disclaimer:
Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.